It might be of some concern to shareholders to see the Imagi International Holdings Limited (HKG:585) share price down 11% in the last month. But looking back over the last year, the returns have actually been rather pleasing! In that time we’ve seen the stock easily surpass the market return, with a gain of 68%.
With zero revenue generated over twelve months, we Imagi International Holdings has proved its business plan yet. As a result, we think it’s unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Imagi International Holdings will significantly advance the business plan before too long.
As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Some Imagi International Holdings investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital
Imagi International Holdings had net cash of just HK$145m when it last reported (June 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. It’s a testament to the popularity of the business plan that the share price gained 68% in the last year, despite the weak balance sheet. The image belows shows how Imagi International Holdings’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. However you can take a look at whether insiders have been buying up shares. It’s usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
A Different Perspective
We’re pleased to report that Imagi International Holdings shareholders have received a total shareholder return of 68% over one year. That certainly beats the loss of about 11% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.